MANAGERIAL ACCOUNTING 20  Managerial accounting basics  Cost concepts  Manufacturing costs  Contemporary developments

Managerial Accounting Basics “The league is projecting losses of $100 million during the first two years, with plans to edge into the black in year three.” Business Week, October 2000 Planning Uses of Accounting Information

“…ditching money-losing routes, launching early discount sales to fill planes.” Decision-Making Business Week, October 2000 Control “With better forecasting, the company can alert bottlers to rev up production lines.” Business Week, May 2000

Financial Accounting  stockholders, banks, IRS  CEOs, sales managers, production managers  comparable and reliable  relevant  financial statements  internal reports Managerial Accounting  business as a whole  subunits of the business

Manufacturing Costs Prime Costs Conversion Costs Direct Materials Direct Labor Factory Overhead (Product Costs)

Product Costs Period Costs  identified with products produced  added to the cost of inventory  identified with a period of time  recorded as an expense when products are sold  recorded as an expense immediately  selling and administrative expenses

Finished Goods Work in Process Direct Materials Three Inventory Accounts

DM used in production ? Direct Materials Beginning DM $25 Ending DM $40 DM Purchased $195 Changes in DM Inventory

Work in Process Beg WIP $42 DM Used $180 Direct Labor $220 Factory Overhead $70 Goods Manufactured ? Ending WIP $22 Changes in WIP Inventory

Goods Sold ? Finished Goods Manufactured $490 Beginning Finished Goods $14 Ending Finished Goods $37 Changes in Finished Goods Inventory

Contemporary Developments Growing Service Industry

R & D Product Design Production Marketing Distribution Customer Service The Value Chain Value Change Management

 Inventory ordered / goods produced JIT  Benefits  lower inventory costs  more efficient production  quicker response times  Requires  greater reliability  fewer defects  reduced setup time Just-in-Time Inventory

 Customer satisfaction  Problem solving teams  Plan-do-check-act  benchmarking Total Quality Management